What Is a Good Cash-on-Cash Return for Rental Property?

The Honest Answer: It Depends on What You Gave Up

Cash-on-cash return measures annual pre-tax cash flow against the cash you invested. Whether a number is good depends on what that cash could earn elsewhere and how much risk and work the property adds.

A rental producing 5% cash-on-cash while a savings account pays 5% is not paying you for tenant risk, vacancy risk, or 2 a.m. maintenance calls. The same 5% looks different when risk-free rates are near 1%, which is why no single threshold survives every market cycle.

Ranges Investors Commonly Target

• Below 4%: usually justified only by strong appreciation prospects, heavy principal paydown, or a strategic purchase.
• 4% to 7%: common for stabilized properties in competitive or appreciating markets.
• 8% to 12%: a frequent target range for cash flow-focused investors in secondary markets.
• Above 12%: possible in higher-risk markets or value-add deals, and often a sign to double-check the expense assumptions rather than celebrate.

Why Leverage Changes the Number

Financing makes cash-on-cash return elastic. A property bought with cash might return 6%, while the same property with 25% down could return 9% or 2% depending entirely on the interest rate.

That means a good number at 20% down is not comparable to a good number at 50% down. When comparing deals, hold the financing structure constant, or compare each deal against its own alternative use of the same cash.

First-Year Returns Are Usually the Floor

Cash-on-cash return is typically calculated on year-one numbers. Rents tend to grow while the mortgage payment stays fixed, so a stabilized property often improves from its initial figure.

Some investors accept a modest first-year return, such as 4% to 6%, when rent growth, principal paydown, and tax treatment push the total return meaningfully higher. Others require the first year to stand on its own. Decide which investor you are before the number decides for you.

How to Benchmark Your Deal

Calculate the return with conservative inputs: real vacancy, full management fees even if self-managing, and honest CapEx reserves. Then compare against your alternatives, including index funds, treasury yields, and other available properties, adjusted for the extra risk and effort a rental demands.

Finally, check the metric alongside cap rate and DSCR. A high cash-on-cash return with a DSCR near 1.0 is a leveraged bet on nothing going wrong.

Frequently Asked Questions